@Kat wrote:Please see SuperUser @maglib's response posted on June 1, 2019. The original question/answer are linked below.
@Kat- I believe that answer that has a 6/1/19 date is the date that the post was migrated to this new forum, not the original date if the post which could be 2-3 years old.
As of 2018 causality (theft) losses are no longer a tax deduction and cannot be reported anywhere.
@macuser_22Thank you! I'll delete this answer, and leave yours for the original poster.
Got this from the business group (note semantics of investment losses vs. embezzlement)
(1) A loss from criminal fraud or embezzlement (ponzi tpye scheme) in a transaction entered into for profit is a theft loss, not a capital loss, under § 165.
(2) A theft loss in a transaction entered into for profit is deductible under § 165 (c) (2), not § 165 (c) (3), as an itemized deduction that is not subject to the personal loss limits in § 165 (h), or the limits on itemized deductions in §§ 67 and 68.
(3) A theft loss in a transaction entered into for profit is deductible in the year the loss is discovered, provided that the loss is not covered by a claim for reimbursement or recovery with respect to which there is a reasonable prospect of recovery.
(4) The amount of a theft loss in a transaction entered into for profit is generally the amount invested in the arrangement, less amounts withdrawn, if any, reduced by reimbursements or recoveries, and reduced by claims as to which there is a reasonable prospect of recovery. Where an amount is reported to the investor as income prior to discovery of the arrangement and the investor includes that amount in gross income and reinvests this amount in the arrangement, the amount of the theft loss is increased by the purportedly reinvested amount.
(5) A theft loss in a transaction entered into for profit may create or increase a net operating loss under § 172 that can be carried back up to 3 years and forward up to 20 years. An eligible small business may elect either a 3, 4, or 5-year net operating loss carryback for an applicable 2008 net operating loss.
(6) A theft loss in a transaction entered into for profit does not qualify for the computation of tax provided by § 1341.
(7) A theft loss in a transaction entered into for profit does not qualify for the application of §§ 1311-1314 to adjust tax liability in years that are otherwise barred by the period of limitations on filing a claim for refund under § 6511.
if it occurred on or b/4 12/31/2017 and discovered in 2017 with no hope of recovery, it would be on 2017 return.
if in 2018, no deduction.